Poverty threshold

Percentage of population living on less than $1.25 per day. UN estimates 2000–2007.

Graph of global population living on under 1, 1.25 and 2 equivalent of 2005 US dollars a day (red) and as a proportion of world population (blue) based on 1981–2008 World Bank data

The poverty threshold or poverty line is the minimum level of income deemed adequate in a particular country.[1] In practice, like the definition of poverty, the official or common understanding of the poverty line is significantly higher in developed countries than in developing countries.[2][3] In Oct 2015 World Bank updated international poverty line to US $1.90 a day.[4] In 2008, the World Bank came out with a figure (revised largely due to inflation) of $1.25 at 2005 purchasing-power parity (PPP).[5] The common international poverty line has in the past been roughly $1 a day.[6] At present the number of people living under extreme poverty is likely fall below 10% according the World Bank projections released in 2015.

Determining the poverty line is usually done by finding the total cost of all the essential resources that an average human adult consumes in one year.[7] The largest of these expenses is typically the rent required to live in an apartment, so historically, economists have paid particular attention to the real estate market and housing prices as a strong poverty line affector. Individual factors are often used to account for various circumstances, such as whether one is a parent, elderly, a child, married, etc. The poverty threshold may be adjusted annually.

Contents

History1

Absolute poverty2

Relative poverty3

History of the concept of relative poverty3.1

Relative poverty versus inequality3.2

Basic needs4

National poverty lines5

Criticisms6

Overstating Poverty6.1

Understating Poverty6.2

See also7

Notes8

References9

Further reading10

External links11

History

Charles Booth, a pioneering investigator of poverty in London at the turn of the 20th century, popularised the idea of a poverty line, a concept originally conceived by the London School Board.[8] Booth set the line at 10 to 20 shillings per week, which he considered to be the minimum amount necessary for a family of 4 or 5 people to subsist.[9]Benjamin Seebohm Rowntree (1871–1954), a British sociological researcher, social reformer and industrialist, surveyed rich families in York and drew a poverty line in terms of a minimum weekly sum of money "necessary to enable families ... to secure the necessaries of a healthy life", which included fuel and light, rent, food, clothing, and household and personal items. Based on data from leading nutritionists of the period he calculated the cheapest price for the minimum calorific intake and nutritional balance necessary before people got ill or lost weight. He considered this amount to set his poverty line and concluded that 27.84 percent of the total population of York lived below this poverty line.[10] This result corresponded with that from Charles Booth's study of poverty in London and so challenged the view, commonly held at the time, that abject poverty was a problem particular to London and was not widespread in the rest of Britain. Rowntree distinguished between primary poverty, those lacking in income and secondary poverty, those who had enough income but spent it elsewhere (1901:295-6).[10]

Absolute poverty

Absolute poverty is the level of poverty as defined in terms of the minimal requirements necessary to afford minimal standards of food, clothing, health care and shelter.[11] For the measure to be absolute, the line must be the same in different countries, cultures, and technological levels. Such an absolute measure should look only at the individual's power to consume and it should be independent of any changes in income distribution. The intuition behind an absolute measure is that mere survival takes essentially the same amount of resources across the world and that everybody should be subject to the same standards if meaningful comparisons of policies and progress are to be made. Notice that if everyone's real income in an economy increases, and the income distribution does not change, absolute poverty will decline.

Measuring poverty by an absolute threshold has the advantage of applying the same standard across different locations and time periods: it makes comparisons easier. On the other hand, it suffers from the disadvantage that any absolute poverty threshold is to some extent arbitrary; the amount of wealth required for survival is not the same in all places and time periods. For example, a person living in far northern Scandinavia requires a source of heat during colder months, while a person living on a tropical island does not.

This type of measure is often contrasted with measures of relative poverty (see below), which classify individuals or families as "poor" not by comparing them to a fixed cutoff point, but by comparing them to others in the population under study.

The term absolute poverty is also sometimes used as a synonym for extreme poverty. Absolute poverty is the absence of enough resources (such as money) to secure basic life necessities.

According to a UN declaration that resulted from the World Summit on Social Development in Copenhagen in 1995, absolute poverty is "a condition characterised by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information. It depends not only on income but also on access to services."[12]

David Gordon's paper, "Indicators of Poverty & Hunger", for the United Nations, further defines absolute poverty as the absence of any two of the following eight basic needs:[12]

Safe drinking water: Water must not come solely from rivers and ponds, and must be available nearby (less than 15 minutes' walk each way).

Sanitation facilities: Toilets or latrines must be accessible in or near the home.

Health: Treatment must be received for serious illnesses and pregnancy.

Shelter: Homes must have fewer than four people living in each room. Floors must not be made of dirt, mud, or clay.

Education: Everyone must attend school or otherwise learn to read.

Information: Everyone must have access to newspapers, radios, televisions, computers, or telephones at home.

Access to services: This item is undefined by Gordon, but normally is used to indicate the complete panoply of education, health, legal, social, and financial (credit) services.

For example, a person who lives in a home with a mud floor is considered severely deprived of shelter. A person who never attended school and cannot read is considered severely deprived of education. A person who has no newspaper, radio, television, computer, or telephone is considered severely deprived of information. All people who meet any two of these conditions – for example, they live in homes with mud floors and cannot read – are considered to be living in absolute poverty.

The term "Absolute Poverty" is slightly misleading when defined in this manner, as there are great numbers of people who have none of these eight basic needs met, but are still grouped with those who lack only 2.

Relative poverty

Relative poverty is the "most useful measure for ascertaining poverty rates in wealthy developed nations".[13][14][15][16][17] Relative poverty measure is used by the

^Minority [Republican] views, p. 46 in U.S. Congress, Report of the Joint Economic Committee on the January 1964 Economic Report of the President with Minority and Additional Views (Report). Washington, D.C.: US Government Printing Office. January 1964.

References

^The Conference Board of Canada "uses the OECD's relative measure of child poverty, which calculates the proportion of children living in households where disposable income is less than 50 per cent of the median in each country." The Conference Board 2013 cautioned that Canada's high poverty rate, ranks among the worst of the 17 countries they compared. "Canada's child poverty rate was 15.1 per cent, up from 12.8 per cent in the mid-1990s. Only the United States ranked lower.

Notes

See also

Further, the U.S. Census Bureau calculates the poverty line the same throughout the U.S. regardless of the cost-of-living in a state or urban area. For instance, the cost-of-living in California, the most populous state, was 1.42 times the U.S. average in 2010 while the cost-of-living in Texas, the second most populous state, was 0.90 (90%) of the U.S. average.

In addition to wage and salary income, investment income and government transfers such as SNAP (also known as food stamps) and housing subsidies are included in a household's income. Studies measuring the differences between income before and after taxes and government transfers, have found that without social support programs, poverty would be roughly 30% to 40% higher than the official poverty line indicates.[49][50]

Conservative critics point out that stated poverty lines in countries with substantial welfare systems (such as the United States and Europe) fail to count in-kind transfers, whether from public or private sources, when calculating a poverty threshold. For example, if a parent pays the rent on an apartment for an adult son directly to the apartment owner, instead of giving the money to the son to pay the rent, the money does not count as direct income to the son. If a church or non-profit organization gives food to an elderly person, the value of the food is not counted as direct income to the elderly person. Rea Hederman, a senior policy analyst in the Center for Data Analysis at the Heritage Foundation, said:

Overstating Poverty

Using a single monetary poverty threshold is problematic when applied worldwide, due to the difficulty of comparing prices between countries. Prices of the same goods vary dramatically from country to country; while this is typically corrected for by using purchasing power parity (PPP) exchange rates, the basket of goods used to determine such rates is usually unrepresentative of the poor, most of whose expenditure is on basic foodstuffs rather than the relatively luxurious items (washing machines, air travel, healthcare) often included in PPP baskets. The economist Robert C. Allen has attempted to solve this by using standardized baskets of goods typical of those bought by the poor across countries and historical time, for example including a fixed calorific quantity of the cheapest local grain (such as corn, rice, or oats).

A poverty threshold relies on a quantitative, or purely numbers-based, measure of income. If other human development-indicators like health and education are used, they must be quantified, which is not a simple (if even achievable) task.

Using a poverty threshold is problematic because having an income slightly above or below it is not substantially different; the negative effects of poverty tend to be continuous rather than discrete, and the same low income affects different people in different ways. To overcome this problem, a poverty index or indices can be used instead; see income inequality metrics.

Criticisms

India's official poverty level, on the other hand, is split according to rural vs. urban thresholds. For urban dwellers, the poverty line is defined as living on less than 538.60 rupees (approximately US$12) per month, whereas for rural dwellers, it is defined as living on less than 356.35 rupees per month (approximately US$7.50).[47]

In the UK, "more than five million people – over a fifth (23 percent) of all employees – were paid less than £6.67 an hour in April 2006. This value is based on a low pay rate of 60 percent of full-time median earnings, equivalent to a little over £12,000 a year for a 35-hour working week. In April 2006, a 35-hour week would have earned someone £9,191 a year – before tax or National Insurance".[45][46]

In 2015, in the United States, the poverty threshold for a single person under 65 was at an annual income of US$11,770; the threshold for a family group of four, including two children, was US$24,250.[43][44] According to the U.S. Census Bureau data released on September 13, 2011, the nation's poverty rate rose to 15.1 percent in 2010.

National estimates are based on population-weighted subgroup estimates from household surveys. Definitions of the poverty line do vary considerably among nations. For example, rich nations generally employ more generous standards of poverty than poor nations. Even among rich nations, the standards differ greatly. Thus, the numbers are not comparable among countries. Even when nations do use the same method, some issues may remain.[42]

CIA World Factbook-based map showing the percentage of population by country living below that country's official poverty line.

National poverty lines

[41][16][15][14][13] find that relative poverty is the "most useful measure for ascertaining poverty rates in wealthy developed nations such as Canada".[17][notes 1]
According to a 2008 report by the

Professor Chris Sarlo, an Organisation for Economic Co-operation and Development (OECD) and UNESCO reports on poverty in Canada. They used the relative poverty measure considered most useful for advanced industrial nations like Canada, which Sarlo rejects.

In the development discourse, the basic needs model focuses on the measurement of what is believed to be an eradicable level of poverty.

In 1978 Ghai investigated the literature that criticized the basic needs approach. Critics argued that the basic needs approach lacked scientific rigour; it was consumption-oriented and anti-growth. Some considered it to be "a recipe for perpetuating economic backwardness" and for giving the impression "that poverty elimination is all too easy".[34]Amartya Sen focused on 'capabilities' rather than consumption.

A traditional list of immediate "basic needs" is food (including water), shelter and clothing.[33] Many modern lists emphasize the minimum level of consumption of 'basic needs' of not just food, water, and shelter, but also sanitation, education, and health care. Different agencies use different lists.

The [31][32]

Basic needs

The term relative poverty can also be used in a different sense to mean "moderate poverty" – for example, a standard of living or level of income that is high enough to satisfy basic needs (like water, food, clothing, housing, and basic health care), but still significantly lower than that of the majority of the population under consideration.[30]

Measures of relative poverty are almost the same as measuring income inequality: If a society gets a more equal income distribution, relative poverty will fall. The theorem points out that if society changed in a way that hurt high earners more than low ones, then relative poverty would decrease, but every citizen of the society would be worse off. Likewise in the reverse direction: it is possible to reduce absolute poverty while increasing relative poverty.

Relative poverty measurements can sometimes produce odd results, especially in small populations. For example, if the median household in a wealthy neighborhood earns US$1 million each year, then a family that earns US$100,000 would be considered poor on the relative poverty scale, even though such a family could meet all of its basic needs and much more. At the other end of the scale, if the median household in a very poor neighborhood earned only 50% of what it needs to buy food, then a person who earned the median income would not be considered poor on a relative poverty scale, even though the person is clearly poor on an absolute poverty scale.

A measure of relative poverty defines "poverty" as being below some relative poverty threshold. For example, the statement that "those individuals who are employed and whose household equivalised disposable income is below 60% of national median equivalised income are poor" uses a relative measure to define poverty.[29] Using this definition, if everyone's real income in an economy increases, but the income distribution stays the same, then the rate of relative poverty will also stay the same.

Relative poverty versus inequality

Relative poverty measures are used as official poverty rates by the European Union, UNICEF and the OEDC. The main poverty line used in the OECD and the European Union is based on "economic distance", a level of income set at 60% of the median household income.[28]

Brian Nolan and Christopher T. Whelan of the Economic and Social Research Institute (ESRI) in Ireland explained that "poverty has to be seen in terms of the standard of living of the society in question."[27]

In 1979, British sociologist, Peter Townsend published his famous definition: "individuals... can be said to be in poverty when they lack the resources to obtain the types of diet, participate in the activities and have the living conditions and amenities which are customary, or are at least widely encouraged or approved, in the societies to which they belong (page 31)."[26]

In 1965 Rose Friedman argued for the use of relative poverty claiming that the definition of poverty changes with general living standards. Those labelled as poor in 1995, would have had "a higher standard of living than many labelled not poor" in 1965.[22][25]

In 1964, in a joint committee economic President's report in the United States, Republicans endorsed the concept of relative poverty: "No objective definition of poverty exists. ... The definition varies from place to place and time to time. In America as our standard of living rises, so does our idea of what is substandard."[22][24]

In 1958, John Kenneth Galbraith argued, "People are poverty stricken when their income, even if adequate for survival, falls markedly behind that of their community."[22][23]

In 1776, Adam Smith argued that poverty is the inability to afford "not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without."[21][22]

History of the concept of relative poverty

"Once economic development has progressed beyond a certain minimum level, the rub of the poverty problem – from the point of view of both the poor individual and of the societies in which they live – is not so much the effects of poverty in any absolute form but the effects of the contrast, daily perceived, between the lives of the poor and the lives of those around them. For practical purposes, the problem of poverty in the industrialized nations today is a problem of relative poverty (page 9)."[19][20]

"Relative poverty reflects better the cost of social inclusion and equality of opportunity in a specific time and space."[19]

[18] In the European Union, the "relative poverty measure is the most prominent and most–quoted of the EU social inclusion indicators."[17][16][15][14][13]

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